Prediction: Taiwan’s semiconductor production will grow over the next 5 years. Here is 1 reason why.

Semiconductors are the underappreciated champions of the technology world. They are found in smartphones, computers, televisions, appliances, cars and hundreds of other items that people interact with every day.

Many of the semiconductors used in these products come from Taiwan Semiconductor Manufacturing (TSM 0.33%)the largest chip foundry in the world. It’s been a great five years for TSMC stock, with a 330% gain, and the next five years look just as promising. The reason is artificial intelligence (AI) and TSMC’s role in it.

The foundation of the AI ​​pipeline

The best way to understand why TSMC is so well positioned for the next five years is to work backwards, starting with the AI ​​applications that many people have started interacting with in recent years.

AI applications like OpenAI’s ChatGPT and ABC The twins must be trained using massive amounts of data that far exceed what can be stored in traditional ways such as external hard drives or the cloud. As such, it must be stored in data centers.

These data centers also rely on graphics processing units (GPUs), which is why Nvidiathe world’s largest GPU manufacturer, has seen explosive growth recently. And without TSMC’s manufacturing capabilities, these GPUs would be far less efficient. If AI applications are the top of the pyramid, TSMC semiconductors are the foundation.

The Taiwanese company projects that AI-related sales will grow at a compound annual rate of 50% over the next few years. That would bring the category to about 20 percent of TSMC’s revenue by 2028, a huge boost for the company after slowing smartphone sales recently hurt its business.

Data by YCharts.

Revenue growth doesn’t always translate to stock price growth, but if management’s AI predictions prove accurate, TSMC stock has the potential to rise.